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The World Bank cut its forecast for growth in 2014, while Europe

battles record unemployment, banking secrecy laws and major floods

The World Bank cut its forecasts for this year, citing a deeper-than-expected recession in Europe and a

slowdown in China and India. Renewing fears about growth, it said the global economy was likely to

grow by 2.2% this year, a downgrade from its January forecast of 2.4%. The downbeat forecasts helped

to drive a wave of selling in Japan, where the Nikkei index tumbled 6.35% amid fears that central bank

stimulus measures led by the US might be withdrawn. The World Bank also cut its forecast forgrowth in 2014 to 3.1% from 3%, but maintained its prediction that global GDP would increase by 3.3%

in 2015.

"While there are markers of hope in the financial sector, the slowdown in the real economy is turning

out to be unusually protracted," said Kaushik Basu, senior vice-president and chief economist at the

bank. "This is reflected in the stubbornly high unemployment in industrialized nations, with

unemployment in the eurozone actually rising, and in the slowing growth in emerging economies."

There were also heavy losses on European stock markets in morning trading. although the FTSE 100

recovered by mid-afternoon. The bank is now predicting the eurozone economy will shrink by 0.6% thisyear, compared with an earlier forecast of a 0.1% decline in GDP. The currency bloc's economy is then

expected to grow by 0.9% in 2014 and 1.5% in 2015. The World Bank highlighted slowing growth in

China as well, as authorities there, seek to rebalance the economy, and also stated that India's annual

growth had dropped below 6% for the first time in 10 years. It said there was concern that the US might

begin to ease its support of the world's largest economy by withdrawing quantitative easing, or the use

of central bank cash to buy up sovereign debt in the hope that financial institutions will reinvest the

windfall in the wider economy. The bank added that austerity programmes, high unemployment, and

weak consumer and business confidence would continue to impede growth in higher-income countries.

It downgraded its forecasts for developing countries' GDP to 5.1% this year from an earlier forecast of

5.5%. Growth in 2014 and 2015 is expected to be 5.6% and 5.7% respectively

Unemployment, a great concern for The E.U. Member States

German Finance Minister Wolfgang Schuble wasnt exaggerating when he called youth unemployment

a catastrophe for the European Union. As of March 2013 , 56 percent of Spaniards, 59 percent of

Greeks, and 38 percent of Italians and Portuguese ages 16 to 24 were unemployed. Schuble and

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French counterpart Pierre Moscovici are working on a New Deal for Europe, but its clear that Europes

youth program is no such thing.

The core of the effort is 6 billion ($7.7 billion) carved out of the EUs budget. Some of that (its unclear

how much) would go to the European Investment Bank, which would back loans to small and midsize

enterprises in exchange for commitments to hire and train young people. Some would go to helpingyoung people move to find training and jobs; Germany and other countries have 30,000 unfilled

apprenticeships. Banks in Spain, Greece, and elsewhere arent lending, so this kind of subsidy makes

sense. Yet the scale is far too small. Millions of new jobs are needed, and the initiative falls short.

Youth unemployment has been rising faster than overall unemployment for decades. Dealing with it will

require multiple approachesGerman-style apprenticeships, Danish-style retraining, British-style

deregulation, and, most important, addressing lending inequality. A small or midsize business in

Northern Italy pays 2.5 percentage points more for a loan than a rival across the border in Austria, says

EIB President Werner Hoyer. Only a banking union can address this problem in the long term.

The issue is obviously complex and hard to handle. A recent paper by economists David Blanchflower

and Andrew Oswald suggests, for example, that Spains 80 percent homeownership rate is a factor: Lack

of rental accommodation forces young people to live with their parents rather than move to where the

jobs are. It is thought that tax incentives for Spaniards to rent out their spare rooms might provide a

quick remedy. Better labor market policies are all to the good, but itll take more demand and faster

growth to reduce youth joblessness. If Schuble really wants a fix, the main thing he should do hasnt

changed: reflate Germanys economy to create demand for exports from the periphery and form a

true banking union.

Outside the Euro Zone but inside Europe

The lower house of Switzerland's parliament voted against adopting a plan for banks to step around the

Alpine nation's banking secrecy laws and hand information about their dealings with suspected

American tax evaders to U.S. authorities in an attempt to reach a sweeping resolution. The vote sends

the measure back to the upper house, which approved it last week, for further debate. The proposed

plan would have many of the country's roughly 300 banks start providing details to the U.S. Department

of Justice about their past relationships with American clients and the employees who assisted those

clients. The Swiss cabinet, which announced the plan last month, cautioned Parliament to act swiftly to

approve itimplying that if banks don't come forward now, U.S. authorities may ultimately come down

hard on them with indictments and heavy fines. Wegelin & Co., Switzerland's oldest bank, was hit with aU.S. indictment last year and is now defunct.

Critics have called the plan a violation of Swiss sovereignty, which unfairly exposes local bankers,

advisers and attorneys to legal prosecution in the U.S. Critics have also said the plan lacks important

details on the potential size of fines for the banks that opt to participate. About a dozen banks have

already been under investigation by U.S. authorities, including Credit Suisse Group AG and Julius Baer

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Group AG. Those banks have begun handing over information as part of the U.S. crackdown on

American tax evasion. UBS AG, the country's biggest bank, resolved its issues with the DOJ with a

deferred prosecution agreement in 2009. Credit Suisse has already set aside 295 million Swiss francs

($319.8 million) to deal with the U.S. tax probe. Julius Baer hasn't made a specific provision, but analysts

generally estimate the Zurich-based bank could be hit with fines ranging from 200 million francs to 500

million francs. Swiss officials have said the country remains unable to hand over such detailed

information on clients until the U.S. Senate passes a 2009 amendment to a long-standing tax treaty

between the countries.

The flood zone of Central Europe

The European Union in recent days has been quick to pledge rapid aid to Germany and other Central

European countries as they seek to battle record flooding this week. But on Wednesday, European

Budget Commissioner Janusz Lewandowski said that the promises may have been a bit premature. The

bloc's Solidarity Fund, he said, is empty. "The scale of the catastrophe is absolutely beyond the

reimbursement (possible) in these countries. We are without resources, for sure, for the EuropeanSolidarity Fund," Lewandowski told journalists in Brussels on Wednesday. "In 2013 it is not possible." In

addition, the EU will not be able to produce the amount of aid requested by the United Nations for

Syria, the commissioner said. The UN recently asserted that the war-torn country was in need of at least

3 billion. "There is a big effort (from the EU), but certainly not to the amount the UN is expecting,"

Lewandowski said. The shortage is a direct result of the budget gridlock that has been plaguing the

European Union in recent months. The EU has been trying without success to agree on a budget for the

seven-year period from 2014 to 2020. Although the size of the Solidarity Fund for 2013 is not explicitly

up for discussion, the European Commission has asked member states for supplementary funding of

11.2 billion to cover expenses from both this year and last year. Member states have balked at the

amount and have offered instead to provide 7.3 billion -- but only if the European Parliament climbs

down from its hard-line position in ongoing budget negotiations. EU leaders agreed to a slimmed-down

2014-2020 budget in February, well below the over 1 trillion the Commission had originally asked for.

But the European Parliament rejected the compromise in March.

Date: 30.06.2013

Mircea Halaciuga, Esq.

040724581078

http://risc-managment.webs.com/

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